Republicans and The Slowdown

This morning’s news simply carries on our current theme: the economy is stuck in a low gear, and is seemingly unable to accelerate. The revised GDP figures are hardly worth mentioning in any detail since they end up with first quarter growth at a rate of 1.8%, identical with the preliminary numbers announced last month. The collective yawn was so large that the news almost immediately disappeared from the screens of our chattering media. Apparently the fact that the economy is sliding into a period of comatose delirium is not newsworthy. But that’s where we are.

We can run through the details very quickly: at the end of last year the economy was running at an annual clip of 3.1% growth; it slid to 1.8%. Why? Higher imports, lower government spending, lower private sector investment, a slowdown in household consumption, all partly offset by a run up in inventories. In other words it wasn’t one thing. It was the entire engine slowing down. This general stutter is casting gloom across the forecasting world. Analysts are beginning to comprehend the enormity of our problems and the rather nasty reality that the magic wand isn’t working well.

When the recovery began – should we begin to call it the “so-called” recovery? – I think too many people we so relieved that they immediately went into denial about the long slog ahead. This was particularly true in the realm of politics. Our politics are so fraught that no one wants to dwell long an anything. People don’t just get bored, they get upset that they have to do things. That entails having ideas and not just ideological positions. That, in turn, requires a certain logic and understanding of what goes on in the actual economy – as opposed to what goes on in a fantasy economy. This, as you can imagine, can be quite a problem to those who continue to have faith in magic wands. Yes, there are still people, who despite all the evidence to the contrary, have that faith. The market, they say, will cure all.

No it won’t.

No it hasn’t.

No, it never will.

I do not expect this slowdown to linger at the current level. There is reason to think that GDP will rise to a 2%+ rate later this year. The point is this: that’s nowhere near good enough, and we should all be working out policies to rev things up.

But we are not.

We are, instead, debating various ideas to slow things down. There is a discussion going on centered on when to raise interest rates in order to fend off inflation. There is another centered on how to reduce government spending. A third is all about how to eliminate social programs. The states are leading the way with their various cut backs. Those will not only reduce demand, but will damage our long term productivity and competitive position. Who, after all, needs an educated workforce? And we all just know that if it weren’t for teachers, firefighters, and the police we wouldn’t have any state budget problems. So let’s get rid of them.

That’s called cutting into muscle. And it’s not a pretty sight. Especially in the world’s richest economy.

Our leadership, having been sufficiently incompetent for the last three decades to create this mess, is now shocked – distraught even – to discover that untempered market magic produces lopsided growth, asset price bubbles, and illusory wealth, rather than anything substantial. So as the fizz and froth flutters away and exposes the neglect underneath, they are faced with a conundrum: how to explain our long march into stagnation. After all the deregulatory zealots promised an epoch of riches, not this endless vista of high unemployment and growth so sluggish it hardly constitutes growth at all.

All of a sudden it’s our fault.

Where are the jobs? Well we have people who either like being unemployed – mainstream economists argue that all unemployment is to some extent voluntary – or we have people who are obsolete. We have great gobs of inadequately skilled workers. We need engineers, not auto workers. We need knowledge workers, not middle managers.

This is bunk.

What we have is chronic underinvestment. What we have is corporate cost cutting rather than innovation. What we have is an obsession with shareholder value instead of customers. What we have is the notion that labor is strictly a cost and not a repository of skill worth defending or nurturing. Ultimately, what we have is rotten management theory perfectly executed over thirty years.

Think of it this way: the great flood of well trained corporate bureaucrats that the top MBA schools matriculate each year are either not capable of executing what they learned, or are capable or executing what they learned, which was evidently not very good. You see the state of an economy is very much related to the state of the ideas that permeate its institutions. Two sets of ideas stand out: economic theory and management theory. When you get both wrong you are faced with a crisis. The verdict is in. Thirty years of preaching and deploying capabilities, competencies, lean management, outsourcing, insourcing, right sizing, seven this and six that, have produced exactly zilch. Which is to say life goes on its merry way impervious to simplification and even the most wizard of math wizardry.

Folks: this is because all business, indeed all economics too, is an uphill slog against uncertainty. That great grinding sound we all hear is the relentless destruction wrought by the persistence of uncertainty. Any ideas that ignore, or otherwise are alienated from, the existence of uncertainty will lead us nowhere.

It isn’t our workers who are obsolete. It is our leadership. Academic, corporate, and political. All three are mired deep in the past. They are locked into a set of ideas that the world has passed by.

Let’s take a look at a case study:

Exhibit A: last week, new claims for unemployment assistance rose 10,000 to 424,000. That’s not good. Yes, it could be an aberration, but as I have been repeating lately, how many such aberrations does it take to make a new trend? We cannot keep excusing poor performance. Sooner or later we have to have a plan to fix things.

Enter, roll the drums, the Republicans.

Yes they have a plan.

They are fresh from their Medicare debacle in which they described how they would dismantle the nation’s most popular social program, and then ended up claiming they were only trying to save it. Save it Lenin style that is. You have to burn the village to save the village. Or, in the Republican’s words, you have to eliminate Medicare to make it affordable. In order to distract our congenitally short term minded media from that disaster, the GOP has conjured up a new plan.

A jobs plan.

Someone must have noticed all those unemployed people.

This new plan is based around big tax cuts for the wealthy and corporations. Which means it isn’t new at all. But these cuts, we are told, will spur innovation and investment. This will create jobs as the market magic works its wondrous ways. We are being asked to believe that the magic wand will work this time. Please ignore all that cash currently not being invested by big business. We need to cut taxes to generate cash so they can invest. They are cash rich, when they need to be cash richer.

Do we laugh, or do we cry?

If you think you’ve heard all this before, you have. It’s supply side voodoo. It’s Reagan or Bush redux.

It didn’t work then. It won’t work now.

The Republicans are intellectually bankrupt. Their thirty year ideological ascendancy has left them staid, stale, used up, and without anything to contribute. The problem being that they keep wheeling the same lines out and repackaging them as new. And the media keeps grabbing hold of it all as if it’s new. These are the ideas that dug the hole. I have no objection to right leaning ideas: we need a choice. But, please, we need to let go of this rubbish.

This problem is compounded by the fact that for those same thirty years the Democrats have abandoned their roots and triangulated, trimmed, and otherwise moved rightwards. They are complicit in too. Our current economic mess is the one and only true example we have of bipartisan cooperation. I wish it weren’t.

This malaise we find ourselves in will require new solutions. Or, possibly, the application of older ideas that have been forgotten by our leadership. Yet we keep getting the same tired stuff thrown at us across the board. Our academic, corporate, and political leaders have let us down. They have become inbred and immobilized by bureaucratic, technocratic, shallow thinking.

To paraphrase a very wise person: a nation gets the leadership it deserves.

But did we deserve this?

I think not.